Having spent years building your company from scratch, one of the last things left to do is to schedule all of your company assets for a potential purchaser. You are able to do this for all the tangible assets, equipment, cash and equivalents, accounts receivables, and the other things you make a living being able to count and value. So, you go ahead and pull that list together, e-mail it over to your lawyers and advisors.
The conversation goes like this:
“I’ve got the list of all of the company assets you put together,” your lawyer says. “The only thing that’s missing is your intellectual property.”
“That’s easy,” you say, going through your checklist of things you know you don’t own: no patents, no trademarks, no copyrights. “We don’t have any.”
“You must have intellectual property,” she says.
“Nope,” you say. “We don’t have any patents or trademarks or copyrights. They’re too expensive so we decided to run the business without intellectual property.” You’re confident you didn’t miss anything, but you’re mistaken.
“You don’t do the exact same thing as your competitors the exact same way,” your lawyer says.
“Of course not,” you say confidently.
“That means you have intellectual property. You just don’t know what it is, where it is, or how you’re protecting it. And,” your lawyer says gravely, “you’re about to sell your company without getting paid for it.”
Now, at the moment you’re looking to get value for your company assets, your lawyer tells you what you were afraid to hear—you can’t identify the assets a buyer might just pay the most for. Your lawyer brings the point home even further, warning that if you don’t identify your intellectual property on a schedule of assets, two potentially disastrous things can happen.
First, you won’t get any value for them, so you’ll leave money on the table when you sell the business.
Second, if a competitor does try to compete against you by stealing any technology, or if a key employee walks away or goes to work for someone else—taking company knowledge with them—you (or your buyer) will have no chance to stop it because you would have represented that you didn’t have any intellectual property to protect.
But all is not lost.
On the eve of selling a company is little late to first have this conversation, but better late than never. Your company does have intellectual property, but you might not know where or what it is. And, even though you may not know quite how to protect it, or exactly how valuable it is (that’s what your intellectual property lawyer is for), it is your job to identify it. If you can do that, you can work with an intellectual property attorney to secure it and make it exclusive to you—so that you can charge higher prices or grow your market share.
Where is this intellectual property typically? It’s usually not in patents, and many companies (especially those in the B2B space without consumer-facing products or services) don’t have valuable trademarks either. But, almost every company has know-how. For example, do you have a unique sales or customer service technique that makes your customers want to work with you? Do you have a business process that helps you deliver services faster, better or cheaper? Do you have a way of creating a business culture that keeps everyone pulling on the same end of the rope to maximize creativity, revenue and profitability?
Or how about this—you are a manufacturing company that has 50 machines to make widgets. One employee in one plant responsible for one of those machines has figured out how to turn the knobs and pull the levers on that one machine to make it run just a little better. That know-how is intellectual property. But wait, there’s more! Did that employee know what they created? Does your company have a process for identifying important innovations so that instead of having one of 50 machines run better, that know-how is communicated across the manufacturing base so all 50 machines run better?
You have intellectual property after all, and if you can identify it, you can protect it. Things you don’t want anyone to know can be protected by strict adherence to a trade secret policy, which is combined with strong security protections so that those trade secrets are kept under lock and key within the company. Key employees, contractors and business partners can, and should, be bound by a non-disclosure agreement to keep your information secret. The top innovators and business managers can, and should, collaborate periodically on sharing valuable know-how and business improvements (like the machine improvement) so the whole company can benefit. And, if an innovation is going become public (like a new product going to market) where it can be copied, an intellectual property lawyer can advise on the type of protection to keep your competitor from doing just that, whether through utility patents, design patents, trade dress protection, or other techniques.
As it turns out, you do have intellectual property you can identify. You just wish you had gotten an intellectual property lawyer involved sooner.
Dan Shulman is a Shareholder in the intellectual property group of Vedder Price in Chicago. As a former in-house attorney, Dan understands pressures that in house counsel face, and treats his clients as he expected to be treated when he was the client. Dan is an experienced litigator, having litigated cases in multiple federal courts and having argued multiple federal appeals. Dan has B.A.’s in Physics, Mathematics and the Integrated Science Program from Northwestern University and his J.D. from Loyola University Chicago School of Law, where he is an adjunct Professor of Legal Writing.
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